The Kenyan shilling experienced its most robust single-day gain against the US dollar in over a decade on Wednesday, riding on a wave of investor confidence following significant inflows received by the government to settle a $2 billion Eurobond.
This dramatic surge propelled the local currency to its strongest position since November last year, erasing all losses incurred earlier this year. Notably, the shilling has appreciated for 11 consecutive days, trading below Ksh153.75 at select commercial banks.
The latest figures from major banks such as Equity Bank and KCB showed varied quotes, with Equity Bank listing the dollar at Ksh153.75 and KCB at Ksh157.5, the highest among the eight banks surveyed by the Business Daily. Forex bureaus, on the other hand, were selling the dollar at rates ranging between Ksh152 and Ksh157.
Just the day before, the Central Bank of Kenya (CBK) had quoted the shilling at Ksh156.7 against the dollar. This record-breaking appreciation is anticipated to reduce import costs for local businesses, as it requires fewer local currency units to purchase the same volume of goods.
Moreover, a stronger shilling is poised to lower debt service costs for the government, with the Treasury estimating that every one-unit movement in the currency could impact debt service costs by Ksh40 billion.
In the past week leading up to Tuesday, the shilling gained 3.62 units against the dollar, resulting in a substantial reduction of Kenya’s debt service costs by Ksh144.8 billion ($965.3 million) within just seven days. However, holders and earners in dollars may have experienced paper losses, as reflected in the example of a $10,000 investment decreasing from Ksh1.6 million to Ksh1.5 million over the same period, representing paper losses of Ksh100,000.
The recent move by Kenya to repurchase a portion of its $2 billion Eurobond notes maturing in June has bolstered investor confidence and contributed to the multi-day rally of the shilling by attracting foreign currency inflows. Last week, Kenya fulfilled its commitment to repurchase part of the Eurobond notes, simultaneously issuing a new Eurobond that raised Ksh235.05 billion ($1.05 billion).
Analysts have noted that this partial buyback has assuaged investor concerns, particularly regarding the June maturity, which was perceived as a potential risk to the Kenyan economy and a deterrent to foreign portfolio flows. Consequently, foreign investors have redirected capital back to the domestic market, with significant inflows observed in bids to the February infrastructure bond auction, which raised Ksh240.9 billion for the exchequer.
In response to these developments, the Central Bank of Kenya has hinted at potential intervention to support the shilling, asserting that the exchange rate had reached equilibrium and suggesting a possible defense of the currency going forward. Despite differing opinions on the exchange rate equilibrium, analysts anticipate further gains for the shilling in the coming days, driven by increased institutional investor interest and a growing supply of dollars in the market.